Can Bankruptcy Stop a Wage Garnishment?

One of the best examples of how powerful bankruptcy can be is what it does to a wage garnishment.

In most cases, the moment a bankruptcy petition is filed, the automatic stay goes into effect. That stay stops most creditors from continuing collection efforts, including lawsuits and wage garnishments.

In other words, bankruptcy can stop a wage garnishment dead in its tracks.

TL;DR

• Filing bankruptcy generally stops most wage garnishments through the automatic stay.

• There can be a short practical delay while the employer, payroll company, and creditor receive notice of the bankruptcy.

• Bankruptcy can also stop many other collection efforts and lawsuits.

• If the underlying debt is discharged, the creditor generally cannot continue collecting it from you personally.

• Certain qualifying judgment liens may also be removed through bankruptcy, depending on the circumstances.

The Automatic Stay Takes Effect When the Bankruptcy Is Filed

Under federal bankruptcy law, filing a bankruptcy petition generally creates an automatic stay without requiring a separate order from the bankruptcy judge. The stay prohibits most creditors from continuing efforts to collect debts that arose before the bankruptcy was filed, including enforcing judgments and garnishing wages.

As a practical matter, however, payroll systems do not always react instantly.

Suppose a bankruptcy is filed on Thursday, but payroll for Friday has already been processed. Money might still be withheld from that paycheck before the employer or payroll company receives and processes notice of the bankruptcy.

That does not mean the garnishment can simply continue. Once the bankruptcy is filed and the automatic stay applies, the creditor generally cannot continue the wage garnishment. Questions involving money already withheld may depend on exactly when it was taken, who is holding it, and the circumstances of the bankruptcy case.

Bankruptcy Can Stop More Than the Garnishment

Attorney Haskell sometimes describes the power of bankruptcy with one of his favorite sayings:

“My judge can beat up their judge.”

Think of it like “my dad can beat up your dad.”

The point is not that one judge is literally more powerful than another. The point is that federal bankruptcy law can stop collection activity that is already underway in state court.

For example, a credit card company may sue you, obtain a judgment, and begin trying to collect that judgment. Filing bankruptcy can generally stop further enforcement while the automatic stay is in effect.

If the debt is ultimately discharged, federal law generally voids the judgment to the extent it determines your personal liability for that discharged debt and prohibits further attempts to collect that debt from you personally.

In appropriate cases, bankruptcy may also allow a debtor to avoid a judicial lien on property when that lien impairs an exemption the debtor is entitled to claim. This is not automatic and does not apply to every lien, but it can be another important tool available through bankruptcy.

Do Not Wait for a Garnishment If You Are Already in Trouble

We do not encourage people to wait until their wages are actually being garnished before speaking with a bankruptcy attorney.

If your debt has become more than you can reasonably handle, creditors are suing you, or you are receiving threats of wage garnishment, it may be better to understand your options before the collection process goes any further.

Bankruptcy can provide an opportunity to stop many collection efforts and address debts that have become unmanageable. The exact protection available will depend on the type of debt, the bankruptcy chapter, prior bankruptcy filings, and the circumstances of your case.

If you are facing a wage garnishment, lawsuit, judgment, or overwhelming debt, contact the Law Office of Louis S. Haskell at 978-459-8359 to schedule a free consultation.

If you are here, you have come to the right place.